4 months ago
June 11, 2021
How Large Companies Buy Translation Services — With Procurement Cube’s Armand Brevig
Armand Brevig, Managing Director of Procurement Cube, joins SlatorPod to discuss how language service providers (LSPs) can work with Procurement at large enterprises and how to successfully convey the value that LSPs provide.
Armand touches on the rationale behind a consultancy firm like Procurement Cube. He talks about how they find clients and goes through the typical company profiles they assist.
He then shares how translation services fit into the company’s portfolio, both from a buyer and sales perspective, including his experience in working with LSPs. He briefly goes through the evolution of the procurement function, from being transactional to strategic.
Armand mentions some of the common misconceptions that service vendors may have about procurement. He also tackles the perception of translation services as a commodity and why LSPs should educate procurement professionals about the translation industry.
After delving into the importance of category management, Armand explores the preference for single-vendor strategies over multi-vendor. The pod closes with Armand’s outlook on the future and how Covid has re-orientated procurement spend.
First up, Florian and Esther discuss RWS’ appointment of Ian El-Mokadem as the new Group CEO. El-Mokadem, who is new to the translation and localization industry, will be replacing current CEO Richard Madden this July. They also unpack RWS’ half-year report, which put revenues at USD 461.8m, with USD 6.2m contributed by Webdunia and Iconic Translation Machines.
Esther talks about subtitle, translation, and automatic transcription startup Subly’s USD 1m seed round. The company was founded in 2018 by Holly Stephens and reportedly started generating revenues from July 2020 in the middle of the pandemic.
Another transcription and captioning provider in the news this week was Verbit, which raised USD 157m in a Series D round, only weeks after acquiring VITAC. Verbit said they are now valued at USD 1 billion, making them a unicorn.
On the tech side of things, Florian looks at a new offering in academia, with the University of Zurich’s Certificate in Advanced Studies in Translation Technology and AI. This course, along with several others from different institutions, appears to favor Python as a programming language.
The duo also review a data anonymization project called MAPA (Multilingual Anonymization toolkit for Public Administrators). MAPA is led by LSP Pangeanic and aims to help EU public administrators share data while adhering to data regulations.
Stream Slator webinars, workshops, and conferences on the Slator Video-on-Demand channel.
Florian: Your leading Procurement Cube, a procurement advisory firm, so tell us a little bit about your personal and professional background? What got you into procurement?
Armand: In terms of what got me into procurement, I kind of fell into the profession, where I have been for more than 20 years. I think that is typical for most procurement professionals. My educational background is in engineering and business. I have worked with a number of big global companies like AstraZeneca, Takeda, Thomson Reuters and I have also had the privilege of working on the sales side, as a Director of Sales for a small software service company.
In 2012, I started Procurement Cube. What really sets us apart as an agency is that we always encourage our clients to see beyond the immediate cost savings to the much wider business benefits that good procurement can actually bring about. It is that motivation that propelled me into starting my own agency so the business background combined with the procurement experience. I could see a gap there, a lot of good work is being done in procurement, but I think that element of focus on the wider business benefits is sometimes lost.
Florian: Who works with a professional procurement consultant advisory firm like yours? How do clients find you? How do you find them?
Armand: We have relied a lot on personal networks to find assignments. It is typically companies that have a unique requirement to complete a sourcing project or implement category management, for example, but they do not have enough in-house expertise or any at all. Another type of client is a large company that has plenty of expertise, but they are experiencing a temporary resource gap that they need filling. Those are the most common scenarios.
Esther: How does localization, translation and other language services fit into your portfolio? In what capacity have you worked with LSPs before?
Armand: It fits into my portfolio because it is a service and my speciality and the speciality of Procurement Cube is the procurement of services so in that sense it is a perfect fit. On the buyer side, we have led a global multi-million translation sourcing project. On the sales side, I am currently working with a leading LSP on an initiative that aims at educating procurement professionals about the translation industry and how value is added within that space when you source translation services.
Florian: Give us a bit of a short intro around the procurement function in an organization more broadly and how it maybe differs for organizations of different sizes.
Armand: Broadly speaking, the whole purpose of a procurement function is to ensure that the organization receives as much relevant business value as it can in exchange for its external spend. To achieve that, the function has gone through quite a transition over time. It is a slow evolution from being transactional to now becoming more strategic. It is also why language service providers bump up against it more and more. The picture though is very patchy in terms of how far companies have gone on that journey from being transactional to becoming strategic.
Typically the bigger the organization is, the more they have invested in making procurement strategic, but it does not always follow them. You can have very transactional teams in very big companies and you may even see different procurement teams within the same company being at different points in that journey towards becoming strategic. The best example of that is a manufacturing company. They tend to have very sophisticated supply chain management teams, direct procurement teams so that is the team that focuses on anything that goes into the production.
Whereas on the indirect part, so all the other overheads, for example, translation services, they are much less sophisticated. It is such a patchy picture but what procurement ultimately wants to achieve is to be perceived as a strategic business partner of key stakeholders but I think most people in procurement would agree with me that most teams are not at that stage yet, but that is where they want to get to.
Florian: Where does the function report into?
Armand: Traditionally the function has reported into the finance area. We are seeing more and more now procurement being represented at board level so it becomes its own area in its own right. Particularly, the large multinational companies. Most, if not, all of them now have CPOs, Chief Procurement Officers. Some of them are still reporting to finance, but some of them are directly represented at board level.
Florian: If you could pick one or two sectors that are most advanced in the way they procure, what would those be?
Armand: Manufacturing on direct size definitely and within that, the automotive industry has a reputation of having very well-developed procurement functions. Having been in pharma myself and that being the most important area, it is also very sophisticated within that procurement practice.
Florian: Would direct be literally the raw materials, and then indirect would be anything other than that?
Armand: Yes. If you think of an income statement it does not say the cost of goods sold. That would typically be direct so in the pharma context that would be the active ingredients, for example, in anything that goes straight into the production. Whereas the indirect, you could consider that as the overheads on the income statement.
Esther: On the services side, if you are working with vendors, are there any misconceptions that you have observed around how procurement and centralized procurement works at the larger enterprises? What do people think versus what is the reality?
Armand: What I often hear vendors say is that procurement only cares about price and if you just lost an RFP, that is what it feels like. I can certainly understand that sentiment, but what procurement generally cares about is not price, it is lowering total costs. They also care about minimizing risk, for example, and giving stakeholders the level of quality that they need rather than the level that they necessarily want. There is often that tension between stakeholder and procurement, but what is the right level of quality?
Those are the things they care about rather than price directly. There is one caveat though which applies very much when it comes to translation services and that is if procurement does not know any better, then they will only care about price. For example, if they truly believe that translation services are a commodity, then it is only the price that matters. Now, I think we all agree that translation services are not a commodity, but it is often perceived like that by procurement professionals.
Florian: Would you say most procurement professionals, if they are naive to the language space, think it is a commodity? Or is it almost a person by person basis, where some of them are a little more open to thinking about things generally as less of a commodity in the services space?
Armand: Unless the procurement person takes a special interest in it, almost a personal interest in it, it looks so much like a commodity that it is a bit of a challenge to get your head around that it is not, because you have this standardized per word rate and then you have tens of thousands of suppliers. It is like a commoditized market, so that is a challenge here for LSPs to help educate procurement professionals because the extent to which most are willing to educate themselves about that is not that great. Translation services is typically a subcategory of a category or even a sub-subcategory. The amount of time that you can actually justify devoting to getting to understand this area may be limited. It may not be in some cases, but that is a risk there so I think that is a real education challenge and it is a substantial one.
Esther: Let us unpack the concept of category management. What is it exactly and why does it matter for service vendors?
Armand: The whole purpose of category management is to engage with the supply market in a more strategic way to get more of that relevant business value in exchange for your external spend. What happens in the beginning when category management is rolled out in an organization is that all the external spend is grouped into categories hence the name category management. Ideally, these categories should match supplier markets so the type of suppliers that sell the same type of service and product should ideally be within the same category.
Then the development of a strategy is then carried out. That is led by the category manager with the involvement of a wider category team that also includes business stakeholders. This has been going on for 20 years but that is what makes it special. It is no longer just a procurement thing, it is supposed to be a business thing. The reason why I think service providers would benefit from knowing about category management is that if they know which category their services fall into then they also know which category manager to influence and they will be able to explore if there are ways that they can help optimize that category and then put that forward as a value proposition to the relevant category manager.
Florian: When I was selling into pharma, banks, et cetera, I did come across category managers but they kept rotating, so I could not develop a personal relationship with them. Are they being rotated intentionally every two years so vendors cannot develop personal relationships long-term?
Armand: The reason why they are rotating is not to confuse vendors or prevent them from building a long-term relationship. It is part of career development within procurement so typically a category manager will seek to move into a category with a larger spend after two, three years as you observed because there is more prestige associated with bigger categories. However, some of them, if they do not have that much opportunity, will then try to make a lateral move into a different category of a similar value because, in order to actually move ahead within the procurement profession in a global multinational company, you need to have that breadth of procurement experience. Without that you cannot become head of procurement, so that is why you see this ‘musical chairs’ from the vendor side.
Esther: What do you think is the best way for LSPs to make contact with and be able to pitch to procurement departments that are operating centrally?
Armand: The first thing that you need to do is to take a step back and ask yourself, should I pitch to procurement? Does it make sense to pitch to procurement? If your unique selling points are aligned with the procurement agenda, then it makes perfect sense to pitch to procurement but if they are not, then you are better off pitching to a key stakeholder that really cares about those unique selling points. To give you some examples of what is on procurement’s agenda in general, no matter what company you are talking about and what size, spend consolidation procurement will always attempt to reduce the number of suppliers and consolidate the spend because that is one of the key problems.
When small growing companies first discover that they need somebody looking after procurement, it is because they discover that all of a sudden they have got thousands of suppliers. Something needs to happen and that challenge continues as the company grows so there is always this drive to consolidate the supplier base. If you have a service offering that in some way, shape or form can help with that, then that is a good pitch to procurement. If you have something that can reduce risk because procurement cares about risk as well, that could be a good pitch to procurement. The more verifiable social proof you have to back up your claims, the better that pitch will go to procurement because they tend to be very data-driven and data-focused.
In terms of who to pitch to in procurement, there you need to find out who is responsible for the translation spend. If you do not know then that can be quite tricky because it falls within different categories within different large companies. If I was selling translation services into procurement, I would look for somebody with the title of Procurement Manager for Indirects, but not all procurement teams are structured in a way, so if not, then I would go for somebody who is Category Manager responsible for corporate services or even marketing. It is a little bit of trial and error to find out who to talk to there and it requires quite some LinkedIn research.
Esther: Do you have a take on the idea of a multi-vendor strategy versus single-vendor strategies within language services and translation in particular? Have you seen any particular trends or shifts around attitudes to those vendor strategies?
Armand: When procurement gets involved, it becomes a single-vendor strategy. I think from a procurement point of view, a multi-vendor strategy does not work particularly well. When you have a multi-vendor strategy, It is often because that spend area has not yet caught procurement’s eye. They have not yet taken any interest in it and so therefore a multi-vendor strategy has been allowed to evolve organically. Now stakeholders may very much want the multi-vendor strategy because of their own preferences but procurement will always try to pull you in the other direction.
The only exception I can think of is where procurement wants to appoint a master vendor so that the company contracts with that one translation agency and then the other many vendor’s spend contracts with that master vendor. That kind of hides the problem of having too many suppliers so there are a lot of challenges with that model from a procurement point of view, but that is the only sort of scenario I can see where procurement will favor a multi-vendor strategy. They would go for single or few rather than having 150.
Florian: Let us say some of the very big tech companies have $20 million, $30 million in localization translation spend. They do not want to give everything to one single vendor, they want to have another company that is very familiar with their account for risk purposes and also keeping the major vendor on their toes in terms of pricing. Is that the reality or not so much?
Armand: Yes, it is. That is a common procurement strategy. It would particularly be applied by category managers who have realized that we are not talking about a commodity. There is actually a supply risk here. If you see the market as perfectly commoditized then there is really no risk, you should be able to chop and change whenever you need. If you realize that is not the case, that strategy you mentioned makes perfect sense and that is one I have implemented myself.
Esther: To what extent is it possible for LSPs to help educate procurement departments? What are some of the things that you at Procurement Cube can also assist with?
Armand: The whole concept of fairness is very strong within the procurement profession but what LSPs can do is to educate procurement about how they can actually get value out of the translation spend. If you have a discussion about quality versus price, what does that quality give you in terms of the ability to reduce overall costs? What does it give you in the ability to mitigate the risk of having a botched translation? In terms of what Procurement Cube can do in that space is that Procurement Cube can act as the independent voice within that whole education piece. Within procurement, there is a healthy skepticism towards vendors that try to help. Are they helping themselves sell? Are they really helping? That can give some objectivity to the whole education piece I am working with there.
Florian: Are there some trends in procurement that LSPs should be aware of? Has the pandemic had some impact on procurement as well? What are the next five years going to bring and what should LSPs be aware of generally?
Armand: I think the future of procurement is going to look like more of the same. We have been on this journey for a couple of decades now. That is going to continue, so more presentations at board level, more getting closer to the internal customers, to the stakeholders, becoming more and more strategic, trying to influence more pockets of spend around the company. That is another thing that is high on the procurement’s agenda, influencing as much of the spend as they can. When procurement was in its infancy, they would be looking after a limited amount of the total spend, now they want to continue pushing the boundaries on that.
In terms of what the pandemic has done when it comes to perhaps reorienting procurement, in some sense, it is brought them back to basics because now in the recovery after the pandemic it is put more focus on cost management, which has always been sort of procurement’s big thing but there is even more focus on it now. There is even more focus on supply risk management because the pandemic exposed the risks that were in the supply chain, which nobody paid any attention to before.
There is now more focus on developing flexible supply chains, before the pandemic, procurement organizations, in general, did the exact opposite. They were pursuing just-in-time systems, which are not flexible but when something as dramatic as the pandemic hits, then just-in-time does not work and you would have been better off with perhaps a more expensive supply chain, but at least one that can cope with these kinds of upsets.